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Thursday, September 15, 2011

CAUTION IS WARRANTED

I realize that most people that come to this blog are bullish on gold. I myself am definitely bullish long-term. That being said warning signs are starting to build.

Since gold is down this morning there's a good chance that the mining stocks are going to break the intermediate trend line today. The complete failure to follow through on the move above 600 is also concerning. Usually after an asset has tested an area three times the breakout occurs with strong follow-through.

Gold is also in jeopardy of breaking the intermediate trend line.

A move below $1705 would confirm a failed daily cycle and a left translated intermediate cycle. That would almost certainly lead to a D-wave decline.

Every D wave so far has retraced 50-62% of the preceding C-wave advance. If it turns out that $1923 was the top of the C-wave then we can expect a move back to the $1400 to $1500 level.

Moreover as this would be a left translated intermediate cycle it should move below the prior intermediate low. Taking that into consideration it would be more likely that gold would decline to test the consolidation zone around $1400 before putting in a final D-wave bottom.

I've mentioned before that C-wave tops tend to occur slightly above a big round psychological number. We currently have a 2b reversal at $1925.
For those people holding gold or mining stocks your position size needs to be small enough that you don't do serious damage to your account if gold takes out $1705 as that would confirm that a D-wave decline has begun and probably still has another $300 to go before a final bottom.

14 comments:

I do not think its automatic to assume that the mining stocks must suffer the same fate as the bullion if it were to decline in a D wave. On they way up the stocks hardly reflected the rise thus maybe the most recent breakout is telling us that they have now assumed a leadership role on the upside and provide resilience on the downside. Just an opinion;

I agree with your analysis. In EW terms, I expect at least a 39% retrace of the move from 681 to 1923(which yields 1439, but so far in this bull, the average wave 2 at every level has been in the 40+ percent range, so somewhere around 1400), and most of the time after an extended wave five of a wave 1, the subsequent wave 2 correction goes to the low of the prior subwave 2, which is at 1380ish. Therefore, we came up with almost the same exact levels using different methods!

Wow! I hope you're right about this Toby. Do you realize, if gold drops back to even $1500, how beautiful an opportunity that would be to buy. Silver could be an even more amazing buy with gold at that level.

Having said that, I don't see gold dropping back that far. Maybe to $1700, but not much farther than that. The FED should provide some more fuel for gold's fire next week. I'm predicting an absolute MINIMUM gold price of $6000 before this bull market is over. And that will only happen if the politicians come to their senses and do the right thing. A more realistic scenario is that gold actually has no maximum price because the FED will continue stimulating the market with massive liquidity injections until the public eventually loses faith in the U.S. currency, and it subsequently experiences a hyperinflationary collapse.

Any move below $1705 would signal a failed daily cycle. Since there are still potentially about 10 weeks left in this intermediate cycle that would also signal a left translated intermediate cycle. Those almost always move below the prior intermediate low, which in this case is $1478.

Anyone expecting Bernanke to initiate QE3 anytime soon has not been listening to what he has said at the the last two meetings. There are already three dissenters on the FOMC that were opposed to just keeping rates low. There's no way he could possibly get QE3 passed at this time.

I suggest you listen to the interviews with Fed Pres. Fisher on Yahoo.com. It's glaringly apparent there will be no further quantitative easing anytime soon.

take a look at Morris Hubbartt's views on 321gold he has had an amazing degree of accuracy in his forward predictions for the past 12 months. He sees gold consolidating in 1700s and 1800s until early october and then a powerful move higher

Excellent job! Your Wave and Cycle analysis is amazing. I totally agree with you, although I came to the conclusion from a different angle. BTW, may I suggest to include silver in your analysis, since it may be THE investment of this decade?

Well, Gary, if the Fed doesn't do something to surprise the market next week then it is going to go into the tank very quickly, probably with B of A being put back in danger of going bankrupt. Gold will probably fall with equities, but not nearly as much. Such a decline in asset prices would have those dissenters on the FOMC begging Bernanke for more QE or some other form of easing at the following meeting. I look for Bernanke to use the two day meeting to persuade those dissenters of his position. Look for some sort of surprise easing at the FOMC meeting next week.

My take is that there are just too many reasons that the Fed won't be able to start QE3 right away, not until the economy and the stock market get much worse. Only at that time the Fed will have enough support to go for it.

Lower gold prices are already priced into the stocks of most gold miners. The stock price of Kinross is still below what it was in December 2009, when gold was about $1100/oz. Other profit-making gold miners have risen only 20-30% since then.

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